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Salesforce.com, Inc Message Board

  • climbwitharope climbwitharope May 24, 2012 7:17 AM Flag

    When and how will Salesforce.com start to make money?

    When and how will Salesforce.com start to make money?

    This is the key question that investors need to ask themselves.

    The line of Marc Benioff is : "It's all about the topline, not the bottomline. Let's grab marketshare before the pie has been taken by others."

    This strategy tacidly assumes two things:

    1) Once we have the biggest piece of the pie, nobody can take it away from us.

    2) Once we have the biggest piece of the pie, we can start making money.

    Both assumptions are wrong in my opinion. Salesforce.com is trying to grab marketshare at the cost of profitability. It invests heavily in sales and marketing to the extent that these costs are bigger than the gross profit. Moreover it is paying its key executives with stockbased compensation. This is not only dilutive for the shareholder, but it is less attractive for employees when the stockprice starts to fall. Why would you want stock instead of salary if the stock is worth less?

    With a current valuation of 10 times the sales at negative EPS, having the thinnest (in fact negative) operating margins in its industry, the odds are that the stockprice will sooner or later collapse, taking away the incentive of stockbased compensation, forcing the company to compensate with real salary costs, increasing its costs further, jeopardizing its (non)profitability even more .

    As to assumption 1, Salesforce.com has little barriers to competition from its many competitors, some of them much bigger, well funded PROFITABLE companies like Microsoft, Oracle , IBM, Google and SAP. It's just a fairy tale that these mastodonts would not be able to take away the pie from Salesforce.com once they decide it is serious business (which they appear to have done).

    We have seen this many many times before. Compaq/HP and Dell taking over the lead from IBM in PC's. Microsoft word blasting away Wordperfect, Microsoft explorer crushing Netscape, Apple blowing away Nokia and Blackberry.

    Facebook is under pressure because it has such a high PE (of 100) and price/sales ratio. Salesforce.com does not even have a PE! When they will have one, if ever, the PE will start between 5000 and 10000. If you want to talk about hyperbolic PE's dwarfing the one of Facebook, look no further. Just two weeks ago we saw that that Saleforce.com can drop from 157 to 133 in just a week (from 150 to 135 in one day). Because of one bit of negative news. It is now at 150 again. From 133 to 150 roughly means 2 billion in market cap. That's real money, about the entire yearly revenue, that investors are throwing into a company that is not even making real money for them. As long as this hypercraze continues, the stock could well rise more, but sooner or later the awakening will come, and the stock will collapse suddenly and with more force than many anticipate.

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